Kim Dotcom and his pink cadillac.

Lots of people I know, including some of the people who write for NCS, are up in arms over the U.S. government’s shutdown of the Megaupload file-sharing site earlier this week. It’s being condemned by lots of metalheads as a clampdown on the freedom of the internet, a violation of free speech, a virulent form of censorship, and a sign of worse things to come. I’m sure part of the reason why the reaction has been so intense is because of simultaneous efforts by fuckheads in Congress to pass those SOPA and PIPA bills we wrote about a few days ago.

Does it suck that Megaupload has been shut down? If you’re a downloader, hell yes it sucks. If you’re an artist who uses the site as a convenient way to freely spread your art to reviewers and fans, hell yes it sucks. If you’re someone who is doing legitimate file sharing, and your uploaded files on Megaupload are now in limbo, fucken-A, it blows.

But is the shutdown really some kind of tyrannical trampling on freedom of speech? Nah, I don’t think so. But before we get to opinions, let’s start with some facts. I could be wrong, but it seems like it’s better to develop opinions after you have some facts instead of just taking someone else’s word for it. At the end of this post, I’ll give you the sources of the facts as I understand them, along with a copy of the government’s indictment of Megaupload so you can see exactly the basis of this prosecution.

What laws has Megaupload been charged with violating? The indictment charges the defendants with violating the Racketeering Influenced Corrupt Practices Act (RICO), a law originally passed as a vehicle for going after the Mafia, through acts of criminal copyright infringement and money laundering; conspiracy to commit criminal copyright infringement; conspiracy to commit money-laundering; and criminal copyright infringement and aiding and abetting criminal copyright infringement.

Does this have anything to do with SOPA and PIPA? Hard to know, but unlikely. What’s clear is that the laws Megaupload has been charged with violating have been on the books a long time. The RICO law was enacted in 1970. The criminal copyright law has been around for eons; the most relevant amendment was the No Electronic Theft Act, which was passed in 1997. That amendment allows prosecution even when commercial profit isn’t a motive, though given what’s alleged in the indictment, it doesn’t seem like the government will be relying much on that amendment.

As for timing, this prosecution was the result of a sealed indictment by a federal grand jury of U.S. citizens on January 5, 2012. The indictment was only un-sealed this past week. The indictment was the result of a criminal investigation that began two years ago. It was carried out with the cooperation of law enforcement authorities in New Zealand, Hong Kong, The Netherlands, Germany, and Canada.

Why did the government pick on Megaupload? The indictment alleges that for more than five years, Megaupload has unlawfully reproduced and distributed copyrighted works for profit, including not only music, but also movies, television programs, electronic books, and business and entertainment software. The indictment also alleges that the sole owner of Megaupload has earned more than $175 million in illegal profits from operation of the site.

The key to this case is the government’s charge that Megaupload did more than simply store pirated files for its users — the claim is that it knew about the piracy, profited from it, and even encouraged it.

The indictment states that the conspirators actively promoted uploading of popular copyrighted works and discouraged the vast majority of its users from using Megaupload for long-term or personal storage by automatically deleting content that was not regularly downloaded. The government also claims that the conspirators offered a rewards program that would provide users with financial incentives to upload popular content and drive web traffic to the site, often through user-generated websites known as linking sites. The indictment alleges that the conspirators paid users whom they specifically knew uploaded infringing content and publicized their links to users throughout the world.

The indictment also contends that although Megaupload claimed it had a policy against copyright infringement, it failed to terminate accounts of users with known copyright infringement, selectively complied with their obligations to remove copyrighted materials from their servers, and deliberately misrepresented to copyright owners that they had removed infringing content.

For example, when notified by a rights holder that a file contained infringing content, the indictment alleges that the defendants would disable only a single link to the file, deliberately and deceptively leaving the infringing content in place to make it seamlessly available to millions of users to access through any one of the many duplicate links available for that file.

The government claims that Megaupload has cost owners of copyrights more than $500 million.

Doesn’t the law protect sites like Megaupload against prosecution based on the acts of its users? A federal law called the Digital Millennium Copyright Act does protect sites that host third-party content if they remove infringing content when requested by copyright holders. That law is a critical element in the operations of sites like YouTube, Wikipedia, and many others, since millions of their users may be violating copyright at any given time. The government claims that Megaupload intentionally failed to comply with the DMCA.

Who owns Megaupload? The sole owner is a man named Kim Schmitz, with dual German and Finnish citizenship, who goes by the name of “Kim Dotcom” and has residences in New Zealand and Hong Kong. According to the indictment, he personally earned $42 million in profits from the operations of Megaupload in 2010 alone.

The dude does seem to live pretty high on the hog. Yesterday, law enforcement personnel in New Zealand swooped in on Dotcom’s Auckland, NZ, mansion and seized luxury cars worth NZ $6.0 million (U.S. $4.8 million), including a 1959 pink Cadillac and a Rolls Royce Phantom. New Zealand authorities also froze Dotcom bank accounts holding $11 million in cash.

Are the government’s allegations true? Fuck if I know. Here’s what I do know ( or at least I’m pretty sure about this): First, the U.S. Department of Justice has a lot of discretion about what cases to bring and what cases not to prosecute. In general, they don’t seek indictments — especially in cases as high-profile as this one — unless they’re pretty fucking sure they’ve got the evidence they need to win. Furthermore, the fact that they persuaded a federal judge to authorize an immediate shut-down of the site pending trial means they’ve got evidence backing up what they claim. You can see some of it in the indictment, including internal e-mails among Megauploads managers.

Second, the owner of Megaupload has got the money to pay some high-priced lawyers to defend him and his company, which means that if there’s a trial, it will probably be a level playing field — and if the government can’t prove its case, the defendants will probably escape conviction. The outcome will be in the hands of a Virginia jury, not in the hands of government bureaucrats.

Okay, those are the facts, plus a few educated guesses. Now for some opinions.

1. This case isn’t about freedom of speech or censorship. It’s about two other things. The first thing is the protection of intellectual property through the U.S copyright laws. The theory behind those laws is that creators of artistic works will have a greater incentive to create if they own what they create and are protected in their ability to sell it. Those laws extend not only to music and books (the creation of which which may not require a huge outlay of money), but also to movies, television programs, and computer software.

If you think all creative works, including music, should be free of charge, then your real problem is with the copyright laws, not the shutdown of Megaupload.

Second, this criminal case isn’t based on the theory that even innocent web site operators should be held liable for failing to prevent the use of their site by other people who are infringing someone else’s copyrights. The government’s indictment alleges that Megaupload actively encouraged and facilitated copyright infringement, actually paid people for uploading infringing works, and profited from it handsomely.

That may not be true. Ultimately, the government may not be able to prove its case. But let’s at least be clear about what the government is claiming. At no time in this country’s history has freedom of speech been interpreted to protect the ability of one person to take someone else’s copyrighted creation and give it away without the creator’s permission. The same Constitution that includes the First Amendment’s protection of freedom of speech also empowers Congress “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” (Article I, Section 8, Clause 8.)

2. The Justice Department brought this case for political reasons — to appease the financially powerful companies in the music, film, and software publishing industries in an election year for the Obama Administration — and I’m not talking about the likes of Metal Blade, Century Media, Nuclear Blast, or the multitude of smaller metal labels and DIY metal bands who might benefit if this case is successful. But regardless of how politically motivated this case may be, it wouldn’t have gotten to first base if we didn’t live in a country that had legislated copyright protection for about 200 years.

3. If this case is successful, we will likely see a severe short-term restriction on our ability to download albums for free — because other file-hosting companies will be taking more aggressive steps to prevent the uploading and downloading of copyrighted content. In fact, they’re probably taking steps to do that right now. If you define right and wrong based on your own convenience, then that will be a bad thing. If you put yourself in the position of creators of music, for example, then maybe what’s right and wrong won’t seem so black and white.

4. Focusing just on music, this is merely the latest skirmish in a war between the recording industry and consumers of music that has been going on since the first incarnation of Napster in 1999. Even if Megaupload is shut down permanently, even if other file-hosting services clamp down more severely on unauthorized downloading, you know and I know (even if the Recording Industry Association of America doesn’t) that some other vehicle for digital file-sharing will take their places. So my advice is not to shed too many tears over the fate of Megaupload.

Finally, in case you get the wrong idea about where I’m coming from, I have downloaded music without authorization and without paying for it. Usually, I do that only when I can’t find a legal way of getting the music. But not always. Sometimes I just can’t wait. Also, in the earlier days of this site, I put up links for song downloads without permission from the artists or the labels.

So, I’m not trying to be holier than thou, and I’m not trying to lecture anyone about what to do and not do. I just think this Megaupload butt-hurt furor has less to do with freedom of speech than it does with short-term impairment of our ability to get something for nothing.

Now, please feel free to tell me in the Comments what a douchebag I am.

46 Responses to “THE MEGAUPLOAD SHUT-DOWN: FACT AND FICTION”

Based on the info you’ve provided and the limited knowledge I have about megaupload, I agree with all of your opinions.

I DO think there needs to be overhauls to the copyright/patent system. I also think that content companies and organizations need to get into the goddamn 21rst century, and while piracy will never disappear for better or for worse, content that is easy to acquire at reasonable prices would go a long way to reducing piracy. But that’s not the issue here.

Speaking of antiquated copyright laws: TheMadIsraeli sent me a link to a news report about a Supreme Court decision on Wednesday upholding a 1994 law that gave copyright protection to works first published outside the US, which previously had been in “the public domain” (in other words, free).

Nothing about that law gave anyone the incentive to create anything new, but the court said it was still within the authority that the Constitution gave to Congress in that clause I quoted in the post.

“…this is merely the latest skirmish in a war between the recording industry and consumers of music that has been going on since the first incarnation of Napster in 1999.”

I’d argue that it goes back to the advent of the audio cassette…I can remember the uproar over copying tapes, and radio stations playing lead-ins over the intros of popular songs to prevent people from recording off the radio.

While there was legitimate concern over video and audio tape, they never provided a perfect copy; there is a degradation with each generation, one major flaw in analog formats. Sure, people could record TV shows or movies that were broadcast, but making profit from doing so wasn’t so easy. Consider that at one point, some VHS tapes cost a hell of a lot more – not to mention the price of a VCR. When prices came down, it was easier for people to make copies of VHS tapes, but you still had the quality degradation and still had to deal with an actual inventory if you were dabbling in piracy.

Going to digital formats, even though most compression methods for music are lossy, you can still have a high quality copy and redistribute that with no degradation. Now that broadband is a lot more widespread and offers more upstream and downstream bandwidth, FLAC has become a more reasonable way to share and distribute music. Codecs allow for movies to be brought down to a more managable size (plus removing all the extra crap) and different storage containers allow for software to be broken up into files that can be moved around easier, using a variety of methods (upload, torrent, DCC, etc.). It is further complicated by a lack of physical product – be it music, movies, video games and other software. Some of these only exist digitally; there is no hard copy at all, save for what the end user may burn themselves as a backup.

Moving on, I do think that copyright laws (among others) need some serious work. While the DMCA has its share of problems, it’s not all bad – depending on what kind of material you’re dealing with and what you want to do with it. SOPA and PIPA do not provide any real benefit that I’ve seen in what I’ve read and, like the two versions of the Orphaned Works Act, could do irreversible damage to copyright holders, legitimate websites and most consumers. Good idea, but the implementation allows too much leeway for abuse, intentional or otherwise.

Megaupload is hardly the only site that has been used for sharing content. Nor was it all illegal content stored on their servers. But it was the other stuff they were involved in that brought the hammer down like this. That doesn’t mean the copyright stuff doesn’t matter, but considering the profits made and pissed away, the authorities have other things to also consider.

Everything you say about digital v. analog media is what’s going to make piracy virtually impossible to stop. I don’t think the public is going to tolerate the kind of sledgehammer approach represented by SOPA and PIPA. About all that well-heeled copyright owners will be able to do is go after (or get the government to go after) really large download platforms like Megauload that openly exploit piracy for their own gain. But that will still leave a lot of leaky holes in the dike.

I see two problems with combating piracy: the information they use and the broad methods they use to try to curtail piracy.

You can make up statistics. Even if you’re using actual sources for your information, it’s not that hard to skew them if you want to. Maybe this isn’t true for everything, but it can be done effectively enough when and where it matters. As myself and others have mentioned, a download from an unauthorized source does not always mean a lost sale – it can mean a delayed sale. Companies cite downloads in the millions for some things, movies, music, games. Are there really ten million copies of a game floating around on someone’s hard drive to the one million copies in legit sales it nets? Honestly, I’m not so sure. I will say this though, some do it to actually find out if its worth buying; there aren’t as many game demos these days and most of the games that do have them don’t have a decent demo that really shows what the game has to offer. This is one big reason why games get pirated and I believe that gamers are more likely to make a purchase that those with other content.

With something like music, it’s harder to tell where the divide is. Music comes in smaller bites, costs less to purchase and – with only a couple extremely rare exceptions – costs far less to produce. Artists also face simliar problems with anything that’s been put online. Digital watermarks help, but they are not foolproof. Visible watermarks or tags can be defeated with enough time; Photoshop and Paint Shop Pro have tools now that make it even easier to do so without mangling the image in the process. Hell, some people don’t even care and just re-upload stuff wherever they are and take credit.

I have to wonder how there are still so many leaks these days, which happens more with music than with games, books or movies. While not foolproof, some labels use watermarked files (for those who use digital promos), often with a unique identifier, such as when using iPool for its promo distribution. Physical copies can be ripped, but some contain hidden markers that can be identified later. Granted, not every album gets a leak, but there are still a lot that do end up on download sites or torrents ahead of release.

Now, the other major problem is how piracy is currently combatted. DRM is still popular among many sources, although thankfully the music industry has, in most cases, backed away from the practice. That’s not to say that there aren’t other measures in place; iTunes still has an identifier in the files you download, while some purchases from Amazon have an identifier as well. Not the same thing as DRM, mind you. It doesn’t restrict your playback or burn options, only marks the file as being licensed to you. And that is what it is – a license. Music, games, books, movies… all are things that are licensed to you for your use.

Before I get too far off track…

DRM and copy protection tend to go hand in hand, sometimes people confuse them for each other, while some schemes may actually be a bit of both. But the problem is, they get in the way. The people who actually do buy the products get to deal with the crap that’s there because of piracy. Some of the methods used install additional software to be able to run the program (or game). SecuROM is one of the better known DRM schemes, and it’s also one that causes more problems, sometimes with the online activations (an annoying trend with software), sometimes in general. Games For Windows Live is a service that can also double as a DRM method. Like SecuROM, it can fuck things up. Steam has its own built in DRM, which is one I don’t really mind, although I would rather have it that more games I buy and download on Steam don’t need Steam to actually be running. Combine these and you can have problems. Just ask anyone who has the PC version of Arkham City, some of them may have (or have had before) an uplayable game because of the DRM and the patches that have broken parts of the game or their saves.

Or there’s Ubisoft with its stupid decision to require players to be online to start a game with Assassin’s Creed 2. To give them credit, they did eventually back down from the iniital requirement to always be online to play the game, but that’s not the point, and fortunately they haven’t been as heavy-handed with Brotherhood or Revelations. I fear the days of simply being able to just install a game and play when it’s done are coming to an end. It’s the same with some other software as well, but with nowhere near the piratenoia that game developers and publishers display.

There’s no easy solution. You cannot completely wipe out piracy. However, there are things that could probably be done – or undone – to get people to turn to legit sources instead. Cost is an issue for some. Sure, the price of an album hasn’t risen significantly over the years, but you also have so much more to choose from. I feel that the music industry suffers from quantity over quality more than other industries do. That’s not to say that’s the only reason people download albums, nor is it the main reason, butI think it’s one cause for the downloading to begin with.

Games typically come down a bit in price after launch, which makes them more appealing. A $40 game a month or two after its initial release is a lot more appealing than a $60 game that’s broken in spots. And charging the same price for a digital copy as you do for the physical product doesn’t make a lot of sense to me. There’s less overhead with a digital copy, why should I have to pay extra? Sure, you might make a few more bucks, but think of the consumer.

Which is what fewer and fewer companies are doing, save for treating the majority of people as potential pirates. I want to buy your album, I want to buy that DVD, I want to play that game. But I have to watch how much I spend and I might have to miss out on what you’re offering – or wait until later. Guess what, there are a lot more like me. And yes, there are some who don’t really care, are too cheap or feel that downloading an illegal copy is their way of sticking it to you. But treating the willing and able customers like crap is a sure way to get us to become a different kind of user.

I think one thing that people are upset about this (at least in my experience) is that the USA had the jurisdiction to arrest people in New Zealand. Obviously, they wouldn’t just go there and arrest the suspects, I would assume they talked to the New Zealand government first.

I have no real issues with the U.S. going after this guy. You dance around long enough and theyre going to come for you. My real issue is the arbitrary numbers these guys keep pulling out of their asses that they claim are losses. That whole model is based on the prediction that each download is a guaranteed sale.

Yeah, that’s bound to be how they came up with that $500 million number. If it is, then of course the number is bullshit. There’s probably some way to estimate actual sales losses, maybe through some kind of statistical survey of downloaders. I don’t know enough about these laws to know whether the government will have to prove actual losses in some kind of statistically valid way in order to get a conviction.

If they downloaded it, then why can it not be considered a sale, even if they end up not liking it and deleting it. I don’t know how many times I bought a CD and hated it and either gave it or threw it away. It’s not as if you can return an opened movie or CD and get your money back.

How many times have we heard someone say that they downloaded something and hated it and then ended up saying “Well, I wouldn’t have bought it anyway.”? Well if you wouldn’t have bought it than why did you download it? It’s not as if there aren’t many avenues of approach for previewing an album before downloading it, even if it just leaked. I’m also not trying to sound holier than thou, because I’ve downloaded my fair share as well. The difference is, I don’t try to make excuses to justify my actions.

Because there’s no way to break down the data. Your argument assumes everyone who downloaded the album would have bought it. Some people download things they would never buy specifically because theyre free.

It assumes everyone who downloaded didn’t buy a physical copy. I’m personal proof that’s not true. While I will download, particularly things like limited print demos, I prefer to have an actual copy of something in my hand. I know many metalheads who feel the same.

It assumes people downloading dont already own the product..Again I can speak from personal experience. I still collect vinyl and cassette, but I like to have a digital rip for my Ipod. Its a bitch to do it manually so why not grab it off the net.

Should it be considered a monetary loss if its a piece of music thats been out of print for 25 years? Why? No ones making money on it anyway if theres no new versions being printed. I know several bands who wont reissue their early work, and the only way to get it would be from a download.

Im not defending downloading..like I said above, this guy broke the law, and now hes got to pay the price. Honestly though, we have no idea what kind of impact downloading really has on media, because there is no specific data

I understand where you are coming from. I’ve downloaded many albums that I once bought and either became damaged or out of print. I also understand that these numbers may seem huge, but aside from cd’s, I think they are probably trying to include movie ticket, dvd and rental sales into their asinine formula.

Good point. I’m guilty of using downloads to get music I have on old cassettes onto my ipod.

And to address Scott’s first comment: I’ve bought many cds that turned out to suck as well as ones that I’ve burnt out on quickly and I always take them to local used cd stores where they’re good for trade-in, store credit or cash.

Brilliant article man. I wrote an article last year about that Australian professor who did research into metal/depression, and was praised for being less reactionary than everyone else. Ever since, I’ve tried to be more like that (positive reinforcement and all that), which is why I have a huge amount of respect for the way you’ve responded to this.

It IS a well-written, well researched and (perhaps most importantly) non-sensationalized article. Personally, I’m glad you took the time to post this; I’d been seeing a lot of ZOMG POLICE STATE comments on other sites (and by “other sites” I mean Facebook) so it was cool to have the air cleared in such a reasoned and non-partisan manner.